EXHIBIT 99.1
CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P.
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1995 and 1994
EXHIBIT 99.1 (Continued)
CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P.
TABLE OF CONTENTS
December 31, 1995
LIST OF FINANCIAL STATEMENTS
Reports of Independent Auditors
Consolidated Balance Sheets as of December 31, 1995 and 1994
Consolidated Statements of Operations for the Years Ended December 31,
1995, 1994 and 1993
Consolidated Statements of Partners' Deficit for the Years Ended
December 31, 1995, 1994 and 1993
Consolidated Statements of Cash Flows for the Years Ended December 31,
1995, 1994 and 1993
Notes to Consolidated Financial Statements
Report of Ernst & Young LLP, Independent Auditors
The Partners
Consolidated Capital Equity Partners L.P.
We have audited the accompanying consolidated balance sheet of Consolidated
Capital Equity Partners L.P. as of December 31, 1995, and the related
consolidated statements of operations, changes in partners' deficit and cash
flows for the year then ended. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by the
Partnership's management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Consolidated Capital Equity Partners L.P. as of December 31, 1995, and the
consolidated results of its operations and its cash flows for the year then
ended, in conformity with generally accepted accounting principles.
As discussed in Note A to the consolidated financial statements, in 1995 the
Partnership changed its method of accounting for impairment of long-lived assets
and for long-lived assets to be disposed of.
/s/ERNST & YOUNG LLP
Greenville, South Carolina
February 15, 1996
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
Consolidated Capital Equity Partners, L.P.:
We have audited the accompanying consolidated balance sheet of Consolidated
Capital Equity Partners, L.P. (a California limited partnership) as of December
31, 1994, and the related consolidated statements of operations, partners'
deficit and cash flows for the years ended December 31, 1994 and 1993. These
financial statements are the responsibility of the Partnership's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Consolidated Capital Equity
Partners, L.P. as of December 31, 1994, and the results of its operations and
its cash flows for the years ended December 31, 1994 and 1993, in conformity
with generally accepted accounting principles.
/s/Arthur Andersen, LLP
Dallas, Texas
March 23, 1995
EXHIBIT 99.1 (Continued)
CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P.
CONSOLIDATED BALANCE SHEETS
(in thousands)
DECEMBER 31,
1995 1994
Assets
Cash and cash equivalents $ 2,225 $ 3,393
Securities available for sale -- 195
Investments in limited partnerships 460 2,508
Other assets 5,725 1,254
Investment properties:
Land 10,452 10,831
Building and related personal property 94,906 93,660
105,358 104,491
Less accumulated depreciation (68,167) (63,288)
37,191 41,203
Real estate assets of property in-
substance foreclosed -- 20,722
Less accumulated depreciation -- (1,122)
-- 19,600
$ 45,601 $ 68,153
Liabilities and Partners' Deficit
Liabilities
Accounts payable and accrued liabilities $ 3,035 $ 2,038
Mortgage notes and interest payable 25,050 4,700
Master Loan and interest payable 233,490 238,486
Due to affiliates -- 969
261,575 246,193
Partners' Deficit
General Partner (2,159) (1,780)
Limited Partners (213,815) (176,260)
(215,974) (178,040)
$ 45,601 $ 68,153
See Accompanying Notes to Consolidated Financial Statements
EXHIBIT 99.1 (Continued)
CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
FOR THE YEARS ENDED DECEMBER 31,
1995 1994 1993
Revenues:
Rental $ 24,907 $ 22,987 $ 19,161
Other income 119 77 173
Total revenues 25,026 23,064 19,334
Costs and expenses:
Interest 30,432 27,573 24,852
Operating 16,380 15,903 12,831
Depreciation and amortization 6,431 6,132 5,410
General and administrative 965 780 756
Loss on real estate in-substance
foreclosed -- -- 4,795
Write-down of investment properties
and investment in limited partnerships 8,814 -- --
Total expenses 63,022 50,388 48,644
Gain on real estate tax settlement -- -- 1,108
Gain (loss) on disposition of property 81 (31) --
Loss before extraordinary item (37,915) (27,355) (28,202)
Loss on early extinguishment of debt (19) -- --
Net loss $(37,934) $(27,355) $(28,202)
Net loss allocated to general partner (1%) $ (379) $ (273) $ (282)
Net loss allocated to limited partners (99%) (37,555) (27,082) (27,920)
$(37,934) $(27,355) $(28,202)
<FN>
See Accompanying Notes to Consolidated Financial Statements
EXHIBIT 99.1 (Continued)
CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF PARTNERS' DEFICIT
(in thousands)
General Limited
Partner Partners Total
Partners' deficit at
December 31, 1992 $ (1,225) $(121,258) $(122,483)
Net loss for the year ended
December 31, 1993 (282) (27,920) (28,202)
Partners' deficit at
December 31, 1993 (1,507) (149,178) (150,685)
Net loss for the year ended
December 31, 1994 (273) (27,082) (27,355)
Partners' deficit at
December 31, 1994 (1,780) (176,260) (178,040)
Net loss for the year ended
December 31, 1995 (379) (37,555) (37,934)
Partners' deficit at
December 31, 1995 $ (2,159) $(213,815) $(215,974)
<FN>
See Accompanying Notes to Consolidated Financial Statements
EXHIBIT 99.1 (Continued)
CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
FOR THE YEARS ENDED DECEMBER 31,
1995 1994 1993
Cash flows from operating activities:
Net loss $(37,934) $(27,355) $(28,202)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Loss on real estate in-substance
foreclosed -- -- 4,795
Gain on real estate tax statement -- -- (1,108)
Depreciation and amortization 6,440 6,132 5,410
(Gain) loss on disposition of property (81) 31 --
Cash received from property in-substance
foreclosed -- -- 800
Write-down of investment properties and
investments in limited partnerships 8,814 -- --
Change in accounts:
Other assets (2,871) (170) 7
Interest payable 79 24,648 20,270
Payable to affiliates (969) 349 (52)
Accounts payable and accrued
liabilities 1,039 141 (1,517)
Interest on Master Loan 27,428 -- --
Net cash provided by operating activities 1,945 3,776 403
Cash flows from investing activities:
Property improvements and replacements (5,137) (2,149) (710)
Purchase of securities available for sale -- (195) --
Proceeds from sale of securities available
for sale 195 -- --
Net proceeds from the disposition of
real estate -- 130 --
Net cash used in investing activities (4,942) (2,214) (710)
Cash flows from financing activities:
Proceeds from long-term borrowings 23,635 -- --
Advances on Master Loan 4,002 40 2,390
Loan costs paid (798) -- --
Principal payments on Master Loan (21,661) -- --
Principal payments on notes payable (3,349) (638) (652)
Net cash provided by (used in)
financing activities 1,829 (598) 1,738
Net (decrease) increase in cash and
and cash equivalents (1,168) 964 1,431
Cash and cash equivalents, at beginning
of year 3,393 2,429 998
Cash and cash equivalents, at end of year $ 2,225 $ 3,393 $ 2,429
Supplemental disclosure of cash flow
information:
Cash paid for interest $ 2,917 $ 2,550 $ 4,577
<FN>
See Accompanying Notes to Consolidated Financial Statements
EXHIBIT 99.1 (Continued)
CONSOLIDATED CAPITAL EQUITY PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note A - Organization and Summary of Significant Accounting Policies
Organization: Consolidated Capital Equity Partners ("EP"), a California general
partnership, was formed on June 24, 1981, to engage in the business of
acquiring, operating and holding equity investments in income-producing real
properties. The operations of EP were financed substantially through
nonrecourse notes (the "Master Loan") from Consolidated Capital Institutional
Properties ("CCIP"), a California limited partnership. These notes are secured
by the real properties owned by EP. The General Partner of CCIP is ConCap
Equities, Inc. ("CEI"), a Delaware corporation. In November 1990, EP's general
partners executed a new partnership agreement (the "New Partnership Agreement")
in conjunction with the bankruptcy settlement discussed below whereby EP
converted from a general partnership to a California limited partnership,
Consolidated Capital Equity Partners L.P. ("CCEP"). Pursuant to the New
Partnership Agreement, ConCap Holding, Inc. ("CHI"), a Texas corporation, a
wholly-owned subsidiary of CEI, became the general partner of CCEP, and the
former general partners of EP became limited partners of CCEP. CHI has full
discretion with respect to conducting CCEP's business, including managing CCEP's
properties and initiating and approving capital expenditures and asset
dispositions and refinancings.
All of CEI's outstanding stock is owned by GII Realty, Inc. In December 1994,
the parent of GII Realty, Inc., entered into a transaction (the "Insignia
Transaction") in which, among other things, MAE-ICC, Inc., a wholly owned
subsidiary of Metropolitan Asset Enhancement, L.P., an affiliate of Insignia
Financial Group, Inc. ("Insignia") acquired an option (exercisable in whole or
in part from time to time) to purchase all of the stock of GII Realty, Inc. and,
pursuant to a partial exercise of such option, acquired 50.5% of that stock. As
a part of the Insignia Transaction, MAE-ICC, Inc. also acquired all of the
outstanding stock of Partnership Services, Inc., an asset manager, and Insignia
acquired all of the outstanding stock of Coventry Properties, Inc., a property
manager. In addition, confidentiality, non-competition, and standstill
arrangements were entered into between certain of the parties. Those
arrangements, among other things, prohibit GII Realty's former sole shareholder
from purchasing Partnership Units for a period of three years. On October 24,
1995, MAE-ICC, Inc. exercised the remaining portion of its option to purchase
all of the remaining outstanding capital stock of GII Realty, Inc. held by
Gordon Realty, Inc. Pursuant to the terms of the option, MAE-ICC, Inc. acquired
the remaining 49.5% of the outstanding capital stock of GII Realty, Inc.
Principles of Consolidation: CCEP owns a 75% interest in a limited partnership
("Western Can, Ltd.") which owns 444 De Haro, an office building in San
Francisco, California. CCEP's investment in Western Can, Ltd. is consolidated
in CCEP's financial statements. No minority interest liability has been
reflected for the 25% minority interest because Western Can Ltd. has a net
capital deficit and no minority liability exists with respect to CCEP.
The assets and liabilities at December 31, 1994, and operations from September
30, 1993, through November 30, 1995, of the Carlton House are consolidated in
CCEP's financial statements pursuant to accounting guidelines regarding notes
receivable in-substance foreclosed. Carlton House was transferred to CCIP in a
series of transactions on November 30, 1995.
Note A - Organization and Summary of Significant Accounting Policies - continued
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
the accompanying notes. Actual results could differ from those estimates.
Cash and Cash Equivalents:
Unrestricted - Unrestricted cash includes cash on hand and in banks and in
money market funds. At certain times, the amount of cash deposited at a bank
may exceed the limit on insured deposits.
Restricted cash - tenant security deposits - CCEP requires security
deposits from lessees for the duration of the lease and such deposits are
considered restricted cash. Deposits are refunded when the tenant vacates,
provided the tenant has not damaged its space and is current on its rental
payments.
Restricted Escrows:
Replacement Reserve Account: At the time of the December 15, 1995,
refinancing $375,357 of the proceeds were designated for a "replacement reserve
fund" for certain capital replacements (as defined in the Replacement Reserve
Agreement) at Plantation Gardens, Palm Lake, Society Park East, The Knolls,
Indian Creek Village and Tates Creek Village. At December 31, 1995, the balance
remaining was $375,357 and is included in other assets.
Repair Escrow Account: In addition to the Replacement Reserve Account,
$2,456,056 of the refinancing proceeds were designated for a "repair escrow" to
cover necessary repairs and replacements to be completed at Plantation Gardens,
Palm Lake, Society Park East, The Knolls, Indian Creek Village and Tates Creek
Village within one year of closing. At December 31, 1995, the balance was
$2,465,056 and is included in other assets. All excess funds will be
transferred into the Replacement Reserve Account.
Escrows for Taxes: These funds, held by the Partnership and the mortgage
holder, are designated for the payment of real estate taxes and are included in
other assets.
Depreciation: Depreciation is provided by the straight-line method over the
estimated lives of the apartment properties and related personal property. For
Federal income tax purposes, the accelerated cost recovery method is used (1)
for real property over 15 years for additions prior to March 16, 1984, 18 years
for additions after March 15, 1984, and before May 9, 1985, and 19 years for
additions after May 8, 1985, and before January 1, 1987, and (2) for personal
property over 5 years for additions prior to January 1, 1987. As a result of
the Tax Reform Act of 1986, for additions after December 31, 1986, the modified
accelerated cost recovery method is used for depreciation of (1) real property
additions over 27 1/2 years and (2) personal property additions over 5 to 15
years.
Loan Costs: Loan costs of $798,088 are included in other assets and are being
amortized on a straight-line basis over the life of the loans.
Note A - Organization and Summary of Significant Accounting Policies - continued
Investments: Securities available-for-sale: The General Partner determines the
appropriate classification of debt securities at the time of purchase and
reevaluates such designation as of each balance sheet date. Available-for-sale
securities are carried at fair value, with the unrealized gains and losses,
reported in a separate component of partner's capital. The amortized cost of
debt securities in this category is adjusted for amortization of premiums and
accretion of discounts to maturity. Such amortization is included in investment
income. Realized gains and losses and declines in value judged to be other-
than-temporary on available-for-sale securities are included in investment
income. The cost of securities sold is based on the specific identification
method. Interest and dividends on securities classified as available-for-sale
are included in other income.
Note Receivable In-Substance Foreclosed: The note receivable secured by the
Carlton House Apartment and Office Building ("Carlton House") was deemed in-
substance foreclosed as of September 30, 1993. The Carlton House note
receivable is deemed in-substance foreclosed because control of the property
effectively rests with an affiliate of CCEP and the debtor is unable to pay debt
service according to the note terms. The note receivable in-substance
foreclosed is recorded at the estimated fair value of the collateral property.
See "Note B."
Investments in Limited Partnerships: The investments in limited partnerships
represent certain interest in three affiliated limited partnerships that were
contributed by EP's general partners to the Partnership. These investments are
stated at the lower of estimated fair value of the interests at the time of
contribution to the Partnership or the current estimated fair value of the
interests. The Partnership wrote this investment down $1 million to its
estimated fair value during the third quarter of 1995. Also, in the fourth
quarter of 1995, CCEP received distributions from two of the affiliated
partnerships in the amount of $1,047,860. This amount was subsequently paid to
CCIP as a principal payment on the Master Loan per the loan agreement.
Advertising: The Partnership expenses the costs of advertising as incurred.
Investment Properties: Prior to 1995, investment properties were carried at the
lower of cost or estimated fair value, which was determined using the higher of
the property's non-recourse debt amount, when applicable, or the net operating
income of the investment property capitalized at a rate deemed reasonable for
the type of property. During 1995, CCEP adopted FASB Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of," which requires impairment losses to be recorded on long-lived
assets used in operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less than
the assets' carrying amount. The impairment loss is measured by comparing the
fair value of the asset to its carrying amount. 444 De Haro has experienced a
decline in its estimated net realizable value. Accordingly, the Partnership
recorded approximately $2.814 million in expense for the write-down on the real
estate in the year ended December 31, 1995.
Note A - Organization and Summary of Significant Accounting Policies - continued
Leases: The Partnership leases certain commercial space to tenants under
various lease terms. The leases are accounted for as operating leases in
accordance with Financial Accounting Standards Board Statement No. 13. Some of
the leases contain stated rental increases during their term. For leases with
fixed rental increases, rents are recognized on a straight-line basis over the
terms of the lease. For all other leases, minimum rents are recognized over the
terms of the leases.
The Partnership generally leases apartment units for twelve-month terms or less.
The Partnership recognizes income as earned on these leases. In addition,
management finds it necessary to offer rental concessions during particularly
slow months or in response to heavy competition from other similar complexes in
the area. Concessions are charged to expenses as incurred.
Lease Commissions: Lease commissions are capitalized and amortized using the
straight-line method over the life of the applicable lease. At December 31,
1995 and 1994, lease commissions totaled $624,749 and $1,630,617, respectively,
with accumulated amortization of $201,461 and $1,319,052, respectively. Lease
commissions are included in other assets.
Allocation of Net Income: Pursuant to the Partnership Agreement, net income and
net losses for both financial and tax reporting purposes are allocated 99% to
the Limited Partners and 1% to CHI.
Due to Affiliates: Due to affiliates primarily represents cash flow payments
owed by CCEP to CCIP in accordance with the terms of the Master Loan.
Income Taxes: No provision has been made in the financial statements for
Federal income taxes because, under current law, no Federal income taxes are
paid directly by CCEP. The Partners are responsible for their respective shares
of CCEP's net income or loss. CCEP reports certain transactions differently
for tax than for financial statement purposes.
The tax basis of the Partnership's assets and liabilities is approximately
$128.8 million greater than the assets and liabilities as reported in the
financial statements at December 31, 1995.
Fair Value: In 1995, the Partnership implemented Statement of Financial
Accounting Standards No. 107, "Disclosure about Fair Value of Financial
Instruments," which requires disclosure of fair value information about
financial instruments for which it is practicable to estimate that value. The
carrying amount of the Partnership's cash and cash equivalents approximates fair
value due to short-term maturities. The Partnership estimates the fair value of
its fixed rate mortgages by discounted cash flow analysis, based on estimated
borrowing rates currently available to the Partnership.
Reclassifications: Certain reclassifications have been made to the 1994 and
1993 information to conform to the 1995 presentation.
Note B - Note Receivable Deemed in-Substance Foreclosed
CCEP held a note receivable (the "Carlton House Note") secured by a deed of
trust on the Carlton House with a scheduled maturity in 1995. According to the
note terms, interest accrues at 10% and compounds monthly on principal plus
accrued but unpaid interest. The note receivable has been in default since
1991. As described more fully below the required debt service payments were
reduced to only the amount of net cash flow from the Carlton House. CCEP
recognized $150,000 of interest income related to the note receivable in the
statements of operations for the year ended December 31, 1993. However, in 1994
and 1995, no interest income was recognized as no cash related to the note
receivable was received by CCEP.
The Carlton House was originally owned by CCEP. In 1984, CCEP sold the Carlton
House and received back a $28 million purchase money note secured by a first
lien on the property. CCEP assigned this purchase money note to CCIP as
additional collateral for the Master Loan. In 1986, the buyer defaulted on this
purchase money note and filed for bankruptcy when CCEP attempted to foreclose
on the Carlton House. Pursuant to a reorganization plan, a successor (New
Carlton House Partners, "NCHP") to the buyer executed a new promissory note in
the amount of $31.5 million (the Carlton House Note).
In early 1991, NCHP defaulted on the Carlton House Note. Since the default,
CCEP and NCHP have negotiated a restructuring of the Carlton House Note. During
the negotiating process, the owner made interim payments of $150,000 per month.
In 1992, CCEP and NCHP entered into a Restructure Agreement. Pursuant to the
Restructure Agreement, 1801 Tower, Inc., an affiliate of CCEP and CCIP was
substituted as the new general partner of NCHP in February 1993.
In September 1993, a wholly-owned subsidiary of CCIP purchased the $20.4 million
second lien mortgage note secured by the Carlton House from an unaffiliated
third party. This mortgage note, which is subordinate to CCEP's Master Loan
debt secured by Carlton House, remains the obligation of NCHP. As a result of
the facts that (1) NCHP has no equity in the Carlton House, considering the
current fair value of the Carlton House; (2) proceeds for repayment of the
Carlton House Note can be expected to come only from the operations or sale of
the Carlton House; and (3) NCHP effectively abandoned control of the Carlton
House to CCEP when 1801 Tower, Inc. gained the general partner interest in NCHP
in 1993, CCEP deemed the Carlton House Note in-substance foreclosed as of
December 31, 1993. Accordingly, the net note receivable secured by Carlton
House is presented as "Note Receivable in-substance foreclosed" in accompanying
financial statements for 1994.
On November 30, 1995, New Carlton House Partners, Ltd., a Pennsylvania limited
partnership ("NCHP"), owner of a multi-use apartment/commercial building known
as The Carlton House, the Partnership, Philly Associates Inc., a Texas
Corporation ("Philly"), and Kennedy Boulevard Associates, L.P., a Pennsylvania
limited partnership ("KBA-I, L.P.") (an affiliate of CCIP) entered into a
consensual Transfer Agreement whereby certain mortgage notes held by CCEP and
Philly that are secured by The Carlton House were assigned to KBA-I, L.P. As
NCHP is unable to repay the debt, the parties agreed that in order to avoid the
additional costs and expenses of litigation or a judicial foreclosure, that NCHP
transfer Carlton House to KBA-I, L.P. by a deed-in-lieu of foreclosure in full
satisfaction of its obligations on the mortgages assigned to KBA-I, L.P. As an
additional matter, the transfer of the Carlton House to KBA-I, L.P. shall be in
satisfaction of a portion of the amounts owed by CCEP to the Partnership under
the Master Loan Agreement. NCHP transferred The Carlton House to KBA-I, L.P.
and CCIP recorded the transfer on November 30, 1995.
Summarized below are the assets, liabilities, equity and the results of
operations of the Carlton House that are included in CCEP's financial statements
for the years ended December 31, 1995, 1994 and 1993, prepared on the same basis
as CCEP's financial statements. Any intercompany balances between CCEP and the
Carlton House have been eliminated in CCEP's consolidated financial statements
and the summarized financial statements set forth below:
December 31, 1994
ASSETS (in thousands)
Real estate:
Land $ 3,805
Buildings and improvements 16,917
20,722
Less: Accumulated depreciation (1,122)
19,600
Cash and cash equivalents 1,519
Securities available for sale 195
Prepaid expenses and other assets 103
Total assets $ 21,417
LIABILITIES AND PARTNERS' DEFICIT
Notes and interest payable $ 16
Due to affiliates 763
Other liabilities 467
Total liabilities 1,246
Partners' equity 20,171
Total liabilities and partners' equity $ 21,417
Note B - Note Receivable Deemed in-Substance Foreclosed - continued
For the Eleven For the Year For the Three
Months Ended Ended Months Ended
November 30, December 31, December 31,
1995 1994 1993
Rental revenue $ 5,705 $ 4,831 $ 1,164
Investment income 26 27 --
Total revenues 5,731 4,858 1,164
Costs and expenses:
Property operations 3,747 4,108 1,371
Depreciation 953 920 202
Administrative 103 78 --
Interest 1,342 3 3
Write-down of investment
property 5,000 -- --
Total costs and expenses 11,145 5,109 1,576
Loss from operations (5,414) (251) (412)
Gain on real estate
tax settlement -- -- 1,108
Net (loss) income $(5,414) $ (251) $ 696
Note C - Disposition of Real Estate
CCEP recognized a gain of approximately $134,000 related to a clubhouse fire at
Tates Creek Village and a roof replacement at The Knolls. Offsetting these
gains were losses of approximately $53,000 relating to roof replacements at
Granada, Society Park East, Palm Lake, Indian Creek Village and Shirewood
Townhomes.
During 1994, CCEP sold a building and the related parcel of land which was
adjacent to the Plantation Gardens Apartments. CCEP recognized a $31,000 loss
on the sale.
Note D - Master Loan and Accrued Interest Payable
The Master Loan principal and accrued interest payable balances at December 31,
1995, and December 31, 1994, are $233.5 million and $238.5 million,
respectively.
Terms of Master Loan Agreement
Under the terms of the New Master Loan Agreement (as adopted in November 1990),
interest accrues at a fluctuating rate per annum adjusted annually on July 15 by
the percentage change in the U.S. Department of Commerce Implicit Price Deflator
for the Gross National Product subject to an interest rate ceiling of 12.5%.
The interest rates for each of the years ended December 31, 1995, 1994 and 1993
was 12.5%. Interest payments are currently payable quarterly in an amount equal
to "Excess Cash Flow." If such Excess Cash Flow payments are less than the
current accrued interest during the quarterly period, the unpaid interest is
added to principal, compounded annually, and is payable at the loan's maturity.
If such Excess Cash Flow payments are greater than the currently payable
interest, the excess amount is applied to the principal balance of the loan.
Any net proceeds from sale or refinancing of any of the Partnership's properties
are paid to CCIP under the terms of the Master Loan Agreement. The Master Loan
Agreement matures in November 2000. The General Partner has determined that the
Master Loan and related interest payable has no determinable fair value since
payments are limited to net cash flow, as defined, however the fair value is not
believed to be in excess of the fair value of the underlying collateral.
Effective January 1, 1993, CCEP and CCIP amended the New Master Loan Agreement
to stipulate that Excess Cash Flow would be computed net of capital
improvements. Such expenditures were formerly funded from advances on the
Master Loan from CCIP to CCEP. This amendment and change in the definition of
Excess Cash Flow will have the effect of reducing Master Loan payments to CCIP
by the amount of CCEP's capital expenditures, since such amounts were
previously excluded from Excess Cash Flow. The amendment will have no effect on
the computation of interest expense on the Master Loan for CCEP.
During 1995, CCIP advanced approximately $4 million to CCEP as an advance on the
Master Loan to pay for deferred maintenance and capital improvements and to pay
off certain third party mortgages. In December 1993, CCIP advanced
approximately $2.1 million to CCEP as an advance on the Master Loan. CCEP then
advanced approximately $2.1 million to New Carlton House Partners as an advance
on the Carlton House note to pay Carlton House's 1994 property taxes. In
February 1994, CCIP advanced approximately $589,000 to New Carlton House
Partners ("NCHP"), as an advance on the note receivable ("Carlton House Note")
secured by a deed of trust on the Carlton House Apartment and Office Building
("Carlton House"), to pay Carlton House's 1994 property taxes. In February
1994, CCIP advanced $40,000 to CCEP as an advance on the Master Loan. CCEP then
advanced $40,000 to NCHP as an advance on the Carlton House Note to pay the
remaining balance of 1993 property taxes. The Carlton House note was forgiven
in the November 30, 1995, deed-in-lieu of foreclosure transaction. The Carlton
House note had been previously written-off in the 1993 in-substance foreclosure
transaction.
In connection with the transfer of Carlton House to KBA-I the General Partner of
CCIP had a valuation performed on the property to determine its estimated fair
value. The asset had previously been recorded on the books on the Partnership
and for valuation for the Master Loan based upon appraisals performed by a third
party. The last appraisal valued the property as of May 12, 1995. The General
Partner believed that the information needed to evaluate the property had
changed since this appraisal and that the use of updated information would
ensure a more accurate recording of the transfer of this asset.
Based on its ongoing evaluation of the condition of the property, the General
Partner concluded that additional information received during the fourth quarter
of 1995 regarding the extent of deferred maintenance and improvements needed to
the property indicated that a $5,000,000 write-down was needed to reduce the
property to its estimated net realizable value. The Partnership recorded this
write-down during the fourth quarter before the property was transferred to KBA-
I.
Note E - Notes and Interest Payable
The principal terms of mortgage notes payable are as follows (in thousands):
Principal Monthly Principal
Balance At Payment Stated Balance
December 31, Including Interest Maturity Due At
Property 1995 Interest Rate Date Maturity
Indian Creek Village
1st Mortgage $ 4,700 $ 31 6.95% 12/01/05 $ 4,036
The Knolls
1st Mortgage 5,425 36 6.95% 12/01/05 4,659
Lakeview Office Tower
1st Mortgage 1,335 17 10.5% 09/15/07 --
Palm Lake
1st Mortgage 1,750 12 6.95% 12/01/05 1,503
Plantation Gardens
1st Mortgage 7,100 47 6.95% 12/01/05 6,097
Society Park East
1st Mortgage 2,060 14 6.95% 12/01/05 1,769
Tates Creek Village
1st Mortgage 2,600 17 6.95% 12/01/05 2,233
Totals $24,970 $174
At December 31, 1995, the notes payable are all nonrecourse, collateralized by
deeds of trust on the real property.
The estimated fair value of CCEP's aggregate debt, excluding the Master Loan, is
approximately $25,151,000. This estimate is not necessarily indicative of the
amount the Partnership may pay in actual market transactions.
Note E - Notes and Interest Payable - continued
On December 15, 1995, CCEP successfully financed new mortgage notes on
Plantation Gardens, Palm Lake, Society Park East, The Knolls, Tates Creek
Village and Indian Creek Village. Of the $23,635,000 gross proceeds received in
the refinancing, approximately $546,000 was used to pay off the old mortgage
debt on Tates Creek Village. Additionally, $19,857,000 of the net proceeds was
used to pay down the Master Loan to CCIP. This new debt is superior to the
Master Loan.
Summary of Maturities
Principal payments on notes payable are due as follows (in thousands):
Years Ending December 31, Notes Payable
1996 $ 304
1997 328
1998 355
1999 383
2000 414
Thereafter 23,186
Total $ 24,970
Note F - Related Party Transactions
The Partnership has no employees and is dependent on the General Partner and its
affiliates for management and administration of all Partnership activities.
CCEP paid property management fees based upon collected gross rental revenues
for property management services in each of the years ended December 31, 1995,
1994 and 1993. For the years ended December 31, 1994 and 1993, a portion of
such property management fees were paid to the unaffiliated property management
companies performing day-to-day property management services and a portion was
paid to Partnership Services, Inc. ("PSI") for advisory services related to day-
to-day property operations. In July 1993, Coventry Properties, Inc.
("Coventry"), an affiliate of the General Partner, assumed day-to-day property
management responsibility for two of CCEP's properties under the same fee
arrangement as the unaffiliated management companies. Additionally, from
February 1993 until December 1994, Coventry managed The Carlton House for CCEP.
In late December 1994, an affiliate of Insignia Financial Group, Inc.
("Insignia"), an affiliate of the General Partner, assumed day-to-day property
management responsibilities for all of CCEP's properties. Fees paid to
affiliates of Insignia during the year ended December 31, 1995, and fees paid to
Coventry and PSI for the year ended December 31, 1994 and 1993, are reflected in
the following table.
Note F - Related Party Transactions - continued
Also, CCEP is subject to an Investment Advisory Agreement between CCEP and an
affiliate of ConCap Holdings, Inc. ("CHI"). This agreement provides for an
annual fee, payable in monthly installments, to an affiliate of CHI for advising
and consulting services for CCEP's properties. Advisory fees paid pursuant to
this agreement are reflected in the following table:
For the Years Ended
December 31,
1995 1994 1993
(in thousands)
Property management fees $1,253 $740 $292
Investment advisory fees 233 257 257
Lease commissions 221 110 --
The Partnership Agreement ("Agreement") also provides for reimbursement to the
General Partner and its affiliates for costs incurred in connection with the
administration of CCEP activities. The General Partner and its current and
former affiliates, which includes Coventry, received reimbursements for the year
ended December 31, 1995, 1994 and 1993, as reflected in the following table:
For the Years Ended
December 31,
1995 1994 1993
(in thousands)
Reimbursement for services of affiliates $423 $319 $322
In addition to the compensation and reimbursements described above, interest
payments are made to and loan advances are received from Consolidated Capital
Institutional Properties ("CCIP") pursuant to the Master Loan Agreement. Such
interest payments totaled approximately $2.5 million and $1.5 million for the
year ended December 31, 1995 and 1994. The Partnership received advances under
the Master Loan Agreement totaling $40,000 in February 1994. Advances of
approximately $4 million were made under the Master Loan Agreement during the
year ended December 31, 1995. Carlton House was transferred to CCIP on November
30, 1995, in partial settlement of the Master Loan. As a result of this
transaction, CCIP relieved the Master Loan obligation by approximately
$15,537,000. Additionally, the net proceeds from the financing of Plantation
Gardens, Palm Lake, Society Park East, The Knolls, Tates Creek Village and
Indian Creek Village of $19,857,000 were paid to CCEP to pay down the Master
Loan. Also, approximately $1,048,000 of distributions received from two
affiliated partnerships were paid to CCIP to pay down the Master Loan.
Note F - Related Party Transactions - continued
On July 1, 1995, CCEP began insuring its properties under a master policy
through an agency and insurer unaffiliated with the General Partner. An
affiliate of the General Partner acquired, in the acquisition of a business,
certain financial obligations from an insurance agency which was later acquired
by the agent who placed the current year's master policy. The current agent
assumed the financial obligations to the affiliate of the General Partner, who
receives payments on these obligations from the agent. The amount of CCEP's
insurance premiums accruing to the benefit of the affiliate of the General
Partner by virtue of the agent's obligations is not significant.
Note G - Revenues
Rental income on the commercial property leases is recognized on a straight-line
basis over the life of the applicable leases. Minimum future rental income for
the commercial properties subject to noncancellable operating leases is as
follows (in thousands):
YEAR ENDING
DECEMBER 31,
1996 $ 2,198
1997 1,823
1998 1,454
1999 1,227
2000 798
Thereafter 1,134
$ 8,634
There is no assurance that this rental income will continue at the same level
when the current leases expire.
Note H - Real Estate and Accumulated Depreciation
The investment properties owned by the Partnership consist of the following:
(in thousands)
Building
& Related
Personal Accumulated Depreciable
Description Land Interest Total Depreciation Life-Years
444 De Haro $ 947 $11,858 $ 12,805 $ 8,750 3-18
Granada 171 2,802 2,973 1,930 5-18
Indian Creek Village 1,041 7,861 8,902 5,492 5-18
The Knolls 647 6,578 7,225 4,497 5-18
Lakeview Office
Tower 235 3,415 3,650 2,501 5-18
Northlake Quadrangle 980 4,030 5,010 3,119 5-18
Village Square 272 4,101 4,373 2,978 5-18
Plantation Gardens 1,958 12,721 14,679 8,924 5-18
Regency 350 6,924 7,274 4,970 5-18
Sherwood Square 892 5,412 6,304 3,914 5-18
Shirewood Townhomes 494 5,794 6,288 4,120 5-18
Silverado 628 4,523 5,151 3,375 5-18
Society Park 966 8,052 9,018 5,821 5-18
Society Park East 489 4,572 5,061 3,257 5-18
Tates Creek Village 382 6,263 6,645 4,519 5-18
Total $10,452 $94,906 $105,358 $68,167